The Bank of Nova Scotia Q4 FY2024 earnings call

Management Statement and Operational Highlights

• North Star Focus: Focus on increasing primary clients, with progress in Global Wealth (relentlessly growing advice channels and holistic solutions), Canadian Banking (30% of clients meet primacy definition, up 1.5 percentage points year-over-year), and Tangerine (19% net primary client growth).
• Capital Allocation: Allocating incremental capital to priority businesses, optimizing portfolios (e.g., deemphasizing indirect lending-only channels in domestic mortgage and auto, reducing RWA in International Banking by $9 billion). Strategic initiatives include selling CreditScotia in Peru and investing in KeyCorp.
• Business Line Results: Wealth had a strong finish with record annual earnings of $1.6 billion and ROE expansion to 15.7%. Canadian Bank had revenue-led earnings growth of 7%. International Banking saw earnings growth with $9 billion reduction in RWA. Global Banking and Markets optimized balance sheet and saw growth in underwriting and advisory fees.
• Outlook and Initiatives: Plans to accelerate primacy via Scene+ and Mortgage+ initiatives. Cultural transformation with ScotiaBond, embedding new values and behaviors to drive strategy forward.

Segment Performance

• Canadian Banking: Earnings were $4.3 billion, up $290 million or 7%. Revenue grew 7%, driven by deposit growth and margin expansion, with a return on equity of 20.8%.
• International Banking: Earnings $2.7 billion, up 10% year-over-year. Revenues were up 9% while expenses rose 4%, resulting in positive operating leverage of 5%. Risk-weighted assets in the international business were lower by 6% or over $9 billion in 2024.
• Global Wealth Management: Earnings of $1.6 billion were up 10% year-over-year, benefiting from strong assets under management growth of 18%.
• Global Banking and Markets: Earnings $1.7 billion, down 5% impacted by the denial of dividend received deduction. Excluding this, earnings grew 9% during the year while optimizing risk-weighted asset growth.
• Other Segment: Reported a loss of $1.8 billion, compared to a loss of $1.4 billion in 2023. The higher loss was due to lower revenues, primarily from increased funding costs, and higher taxes.

Guidance

• 2025 earnings growth expected to be within the range of 5% to 7%, in line with Investor Day guidance. Revenue to benefit from strong net interest income growth driven by lower funding costs and growth in loans and deposits.
• Earnings impacted by higher tax rate (23%-24% due to global minimum tax), higher provision for credit losses, and expense growth. KeyCorp investment could add to earnings in 2025.
• Expect strong earnings growth in Global Wealth Management and solid growth in Canadian Banking and Global Banking and Markets, while International Banking earnings expected to be lower.

Risks

• Macroeconomic Uncertainty: Slower growth in Latin American markets, geopolitical risks (e.g., new administrations in Mexico and US), and interest rate fluctuations.
• Credit Risk: PCLs remaining elevated, especially in Canadian retail (impact of higher-for-longer rates) and international portfolios (e.g., Mexican and Chilean portfolios with 91-plus delinquencies).

Question and Answer

• Q: Ebrahim Poonawala asks about earnings growth and ROE improvement.

A: Scott Thomson responds that 5%-7% earnings growth in 2025 is expected, driven by PTPP growth, PCL outlook improvement, and rate environment. ROE expansion will be driven by capital discipline, cost discipline, and capital allocation to priority businesses.

• Q: Gabriel Dechaine inquires about International business.

A: Francisco Aristeguieta states deliberate efforts to improve returns via RWA reallocation, and expects slower growth in Mexico, Peru, and Chile in 2025, but on track to complete transformation by end of 2025.

• Q: Matthew Lee asks about RWA growth.

A: Raj Viswanathan explains RWA growth due to book quality changes and calibration, with organic growth expected to drive internal capital generation.

• Q: Paul Holden asks about Canadian residential mortgage impairments.

A: Phil Thomas notes higher-for-longer rates impact, but sees green shoots with deposit trends and renewal risk mitigation.

• Q: Mario Mendonca asks about dividend growth and buybacks.

A: Scott Thomson says dividend growth will resume with earnings growth, and share repurchases are under consideration as ROE improves.